This week I paired sales and rental data, adjusted for inflation, over the past (nearly) 20 years. I am constantly told that the rental market leads the sales market, but I’m not sure about much other than the two acting as opposites.

There was a big crossover post-9/11, likely caused by the Fed dropping rates to historic low levels, which fueled the housing boom and weakened the rental market…

Last month I spoke to and interviewed Tony Pistilli, a certified real estate appraiser on the Minnesota Department of Commerce Real Estate Appraiser Advisory Board. He’s got a possible solution to the current appraiser – appraisal management company conflict. Its all about conforming to RESPA and preventing banks from shifting the burden to appraisers to pay for bank compliance.

Its the first logical solution I’ve heard. The banks are essentially making the appraiser pay for their RESPA compliance by taking it out of the appraiser’s fee, often 50% of the stated appraisal fee. The consumer is being mislead by the appraisal fee stated by the lender at time of mortgage application.

- Appraisers and borrowers are paying for services the banks receive, not the bank.

- Banks should pay for the services received from the AMC’s who manage the appraisal process.

- Appraiser’s fees should be market driven.

- Banks should be held accountable for the quality of the appraisal.

He’s been spreading the word through all the channels/usual suspects in the blogosphere. Here’s my original post, including his article:

This week’s Wall Street Journal introduces a Greater New York section that focuses on, among other things, regional real estate. They’s staffed up have been the talk of the real estate community for the past month.

The new column “The Assessor (prior names under consideration included “The Appraiser” – how cool would that be?) features a sort of factoid visual presentation of some element of regional housing each day.

The idea was to take a look at a slice of the market and see how it performed. It is really a bad idea to look at individual towns for trends in that market as many attempt to do because the data sets are way too low and varied to be statistically meaningful and can be misleading. The 5 time sample size for this analysis was deemed adequate.

One thing that is clear – sales in these higher-priced towns outpaced the overall rate of sales growth suggesting that the high-end market seems to be returning to the fray. In addition, the jump in median and average sales prices do not suggest that is how prices are rising, but rather how there was a substantial shift in the mix towards high-end sales.

I’m just sayin’…

Actually I’m not saying there’s a housing recovery. We seem to be observing a return to a more reasonable mix of sales activity, rather then the substantial skew toward the lower priced market segments during 2009.

The first is yesterday’s Cities Do It Better article in the NYT Economix section where he asks the question:

What makes dense megacities like New York so successful?

Economic geography was one of my favorite courses in college because it was so applicable to understanding the logic of how a city evolved and operated. Access to natural resources, transportion, labor, etc. He references Jed Kolko’s essay in “Agglomeration Economics” that he edited.

A key point as far as I’m concerned:

In a multi-industry city, like New York, workers could readily find some other employer. The young Chester Carlson was laid off from Bell Labs during the Great Depression, then moved to a law office as a patent clerk and then joined the electronics company that would make Duracell batteries and then invented the Xerox copier.

It’s sort of like my assumption that it is much more likely you will run into someone you know from another state or went to high school with in Manhattan than you would if you lived a mid-sized city. High density brings opportunity.

But there is more risk in cities like Detroit whose economy has always been one-dimensional. Pittsburgh and Houston are examples of smaller cities that learned to diversify after hovering near insolvency in prior decades.

[click image to open article]

His second article was released in City Journal called Preservation Follies which warns against excessive landmarking which serves to make Manhattan less affordable. He’s not anti-preservation, but he makes a case for excessive landmarking which has including buildings that don’t deserve it. His approach was novel to me, in the way that he tracks acres as the metric of landmarking:

He also looks at the addition of housing units within landmark districts:

During the 1980s, the mostly historic tracts added an average of 48 housing units apiece—noticeably fewer than the 280 units added in the partly historic tracts and the 258 units added in the nonhistoric tracts. In the 1990s, the mostly historic tracts lost an average of 94 housing units (thanks to unit consolidation or conversion to other uses), while the partly historic tracts lost an average of 46 units and the nonhistoric tracts added an average of 89 units.

…and its impact on housing prices…

From 1980 through 1991, the average price of a midsize condominium (between 800 and 1,200 square feet) sold in a historic district was $494,043 in today’s dollars. From 1991 through 2002, that price was $582,671—an 18 percent increase. The average price of a midsize condo outside a historic district, meanwhile, barely rose in real dollars, from $581,865 in the first decade to just $583,352 in the second.

0.6% increase year over year, first in about 3 years – caused by the tax credit.

20-City Composite is down 32.6% since June/July 2006.

Month over month decline in 19 of the 20 cities in the index.

0.9% decline from January to February 2010, 5th consecutive monthly decline.

As of February 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003.

After 5 consecutive months of m-o-m declines, the Case Shiller Index is feeling the influence of rising foreclosures and a possible housing double dip, despite the stimulus in sales activity from the multiple federal tax programs.

Although we perform appraisals in Westchester it’s been a while since I wrote about the market. I just did the keynote at Westchester Real Estate, Inc.’s annual award luncheon and got some great feedback from the brokers in attendance.

For perspective, and aside from the last two years, annualized sales levels in 2010 are below every year since 1993. In fact, the annualized sales level for 2010 is exaggerated since the first quarter benefitted from elevated sales activity caused by the federal tax credit which will not continue to skew sales higher in the second half of 2010.

Despite a 54% increase in sales activity in 1Q 2010 over the prior year quarter, sales listing inventory actually increased 3.9%. In other words, new listings entering the market outpaced the properties being sold off. With the gains in sales, we would expect a decline in inventory over the same period.

Here’s an excerpt from the WPAR report.

Real estate firms participating in the Westchester-Putnam Multiple Listing Service reported 1,313 closings of Westchester residential property transactions in the first three months of 2010, an increase of 54% from the same period a year ago. Putnam County closed transactions were up by 28%. The closings largely reflected marketing and contract activity that took place during the late autumn and closing months of 2009.

Although the year to year percentage increases in sales were high in all categories of housing tracked by the MLS, it must be noted that they were calculated against the very poor sales base of the opening months of 2009. At that time total sales were less than half those of the peaks posted in 2006 and 2007. The 2010 volume was closer to that posted at the start of 2008 when the real estate recession first took hold in our area. Seasonally adjusted1, Westchester’s 2010 first quarter sales were equivalent to an annual sales rate of 6,830 units; that approximate annual volume was last experienced in 1995 and 1996.

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller

Seasonality Should be Considered in Comp Selection

April 26, 2010

The Westchester numbers for the first quarter just came out today. Even with the turbulence we’ve seen in the last couple of years, there remains a consistent trend in the median selling prices as relates to “seasonality”.

Not unlike Metro-North or Hamptons rentals, there is a “peak” and an “off peak”.

Whether the overall market is trending up or down, houses that close in the second or third quarters sell for considerably more than those that close in quarters four or one.

Appraisals done “in season” (assuming 60 days from contract to closing, these would be valuation dates in the six months between February 1 and July 31) should rely, if possible, on sales that closed in the second and third quarters, if not from the year of the appraisal then on the prior year. Conversely, appraisals made between August 1 and January 31, or “off season”, should focus on sales from quarters four and one.

Adjustments are required for the difference in market conditions between “in season” and “off season” for single family houses in the New York metropolitan area. What those adjustments should be can be fairly easily calculated by looking at the historical data for median prices. Remarkably, in Westchester at least, the differences are pretty consistent either in upward of downward trending markets.

Check out that serpentine line on the Median Price chart – just for fun, print it out and draw a line connecting only quarters two and three to each other over the years. Then do the same to quarters four and one and watch how quickly that serpentine line straightens out into two lines with much more of a consistent trend to them.

I really don’t understand why appraisers are so stuck on this idea that only sales taking place within six months of valuation date should be used. Six month old sales can be the most misleading ones of all, insofar as market conditions are concerned.

p.s. I know I addressed this issue in a prior post but it bears repeating since it seems almost no one is paying any attention.

The entire conference, which starts on Wednesday, is full of great resources and accomplished professionals. Ryan Slack, the founder of GreenPearl, is focused on providing content that people can actually apply to their everyday work experience.

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Tomorrow morning, I get to be the keynote speaker for this event – a brief presentation. Vivian Marino of the New York Times and her distinguished panel gets to do the heavy lifting. Online registration is here.

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About Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc.Learn More...

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When first moving to New York City in the mid-1980s I remember seeing this epic quote in New York Magazine: “You know what this business is all about? Weenie-waving. Everyone does it. I do too.” -real estate developer Bruce Eichner… Read More